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Best Buy & Sears: A Tale Of Two Retailers

NEW YORK — Best Buy and Sears both reported losses during their fiscal first quarters within days of each other in late May, and the differing reactions to the two announcements were rather striking.

Best Buy reported an $81 million loss for the three months, ended May 4, compared with yearago profits of $158 million. And Sears Holdings — consisting of Sears and Kmart — reported a $279 million loss vs. year-ago profits of $189 million.

Yet Best Buy is still considered to be in recovery mode, and its management is perceived to be doing the right things to reinvent itself — a far cry from a year ago when issues surrounding its previous CEO arose and Wall Street and retail analysts said the chain was on death’s door. Even its competitors have been quoted as saying that a healthy Best Buy is good for the industry.

But the conventional view of Sears Holdings seems to be that it is in bad shape and is rapidly getting worse as it continues to lose money and sell assets. And few, if any, competitors have been quoted publicly as backing the embattled company.

A look at some of the numbers, and their announced plans, can help explain why Best Buy is perceived to be on the upswing, while Sears’ market position is precarious.

Aside from Best Buy’s first-quarter loss, total revenue fell 9.6 percent to $9.4 billion and comp-store sales slipped 1.3 percent for the three-month period, which are not good numbers.

But there were reasons for it that were within Best Buy management’s control. Three key areas were: an aggressive price matching policy vs. Amazon and other online retailers; the closing of 49 big-box locations; and the decision to de-emphasize certain non-core categories.

Hubert Joly, president/CEO, is winning the perception game by making the type of investments and restructuring moves necessary for future growth. And it certainly helped when earlier this year founder Dick Schulze ended his attempt to take the chain private and came back on board.

Joly noted when the quarterly report was released that the U.S comp-sale decline was anticipated; that there was a double-digit comp gain online; that an additional $175 million reduction in annualized costs was found; that the chain had improved customer satisfaction scores; and that work has begun on a new and improved BestBuy.com that would enhance the customer experience and generate more traffic with better search engine optimization tools.

There were other changes, but you get the picture.

Probably the most positive reaction was to the roll out of in-store Samsung Experience shops, and hints that there may be more branded sections in the future was also seen as a positive sign for Best Buy’s resurgence.

Not to mention that Best Buy said it will continue to cut costs and improve operational efficiencies, which have resulted in annualized savings of $325 million to date.

For instance, on the earnings call chief financial officer Sharon McCollam described reverse logistics as a No. 1 priority, among other back-office changes that are in the works.

As for Sears Holdings, the first-quarter loss was another in a litany of bad news for the company over the years. Sears Holdings’ net sales for the three months, ended May 4, fell nearly 9 percent to $8.5 billion, and U.S. comp sales slid 3.6 percent. Sears’ and Kmart’s comp sales were both down, and both reported operational losses.

Chairman/CEO Eddie Lampert’s comments during the company’s earnings call were gloomy, to say the least.

Sears is looking to sell off another part of its business, this time warranties, to boost liquidity. This is on top of Sears selling real estate and business units in the past couple of years for the same reason. Lampert said he values Sears’ product-protection agreements for CE, majaps and other big-ticket items at $500 million.

It certainly didn’t help the perception of Sears Holdings when a report from Data Center Knowledge came out the same week, indicating that the retailer has formed a new division called Ubiquity Critical Environments to convert shuttered Kmart and Sears stores into data centers, disaster-recovery space and cell-tower bases. It seemed to confirm the notion that Sears Holdings is closing locations and distancing itself from retailing.

Still, on the analysts call, Lampert did have some positive news. He said Sears will continue to focus on its loyalty program, multichannel initiatives and digital capabilities, as online sales rose 20 percent during the quarter; will leverage its retail stores to help fulfill online orders; will offer more targeted promotions; and has created a new health and wellness unit to tap into the rapidly-growing category.

But while Lampert said Sears will reduce expenses by $200 million this year, he didn’t specify how or where the savings would be coming from.

All of this may have been the impetus behind Credit Suisse retail analyst Gary Balter’s biting research note: “Over the last few years Mr. Lampert has been slowly dismembering the corporation,” Balter observed. “We believe what we saw this quarter, and what we are likely to see in the future, is that too many pieces have been removed, which in turn is reducing the strength of the core.”

The jury is still out for both retailers but Best Buy’s management seems to be instilling confidence in its investors and suppliers, while the opposite is the case with Sears.